By Qian Qingni
"Consumption is a hotspot of China's economic growth, so is finance. Thus the consumer finance should also be a hotspot as it is a hotspot overlay," said Li Daokui, direct of China and World Economic Research Center of Tsinghua University, at the 2016 Second China Consumer Finance Forum held recently.
Remarkable results in consumer finance
The latest 2016 China Consumer Credit Market Research release by China and World Economic Research Center of Tsinghua University shows that consumer credit is an important starting point for the development of inclusive financial in China. It can meet the financial demands of people in different levels especially those of low- and medium-income consumers, reduce the current budget constraints and achieve the optimal allocation of inter-temporal consumption income.
In recent years, China's consumer finance has achieved remarkable results. Since the China Banking Regulatory Commission approved the establishment of the first batch of 4 pilot consumer finance companies in 2010, the consumer finance companies has achieved leapfrog development from the pilot to the normalization. As of the end of the third quarter of 2016, there have been 15 consumer finance companies and the industry’s average single loan amount was RMB 8.6 thousand yuan with the loan number of less than RMB 5000 accounted for 60 percent of the entire number which made the inclusive finance real.
"In 2016, the consumer finance companies have focused on the consumption hotspots including public consumption, pension, housekeeping, health consumption, information consumption, tourism and leisure consumption and education-culture-sports consumption to meet the traditional consumer demands and release new consumption potential," said Mao Wanyuan, director of Non-banking Financial Institutions Supervision Department of CBRC. At the same time, the consumer finance companies launched in succession all kinds of consumer credit products characterized by small, fast and fractional to meet the convenient consumer needs of young and fashion people, the families with rigid demands and the consumer groups with improved demands, thus the brand effect of the industry is gradually emerging.
Many insiders have expressed much great prospects for consumer finance. They believed that the consumer financial market in China has a great development potential in the future. Ondrej Frydrych, CEO of Home Credit China, said: "Home Credit will further increase investment in China and extend the business reach to provide more convenient, fast and safe consumer finance services to more low-income people."
Tapping the potential of resident consumption
Data show that as of the end of 2015, the resident consumer credit accounted for only 20 percent of the credit scale in China’s banking industry. With housing mortgage loans excluded, the proportion of consumer credit in the true sense was less than 5 percent, far below some 30 percent of the average level of foreign mature market. Under the background of the national economic transformation and urbanization steadily being carried forward and per capita disposable income and household consumption continuing to increase, the development prospects of China consumer finance industry is bright and the industry is becoming one of the new engines to drive the stable growth of the economy.
The insiders believe that the growing up of consumer finance industry can help to tap the consumption potential of Chinese residents and is the key to the success transformation of China's economy in the future. "Consumption upgrade implies the synchronous growth of general consumption and human capital consumption. Human capital includes not only education but also tourism and health. The income difference between urban and rural in China is very large. In this case, the pace of upgrading is not synchronized." Zhang Peng, research associate of Institute of Economic, Chinese Academy of Social Sciences, said that the development space of durable consumer goods such as home appliances, motorcycles, electric vehicles and agricultural machinery is not large in urban, but large in rural areas. At present, the main trend of urban demand is reflected in broad human capital consumption like leisure and tourism, education and training, health care and retirement, which is the focus of consumer credit companies to carry out business.
Mao Wanyuan said that the rapid changes in the consumer market are testing the strain capacity of the companies. Consumer finance companies serve both commercial and financial sections, when the consumer scene changes, the mode of financial service will change as well. Good market reaction speed and business expansion ability is crucial for the consumer finance companies to maintain market competitiveness and achieve sustainable development." Mao Wanyuan believes that some of the consumer finance companies are currently constrained by traditional business philosophy and human factors and need to strengthen and improve their market strain capacity, channel building capacity and financial services customization capability.
Holding the bottom line of financial risks
In Li Daokui’s view, the consumer finance has not fully played its role currently and more efforts in stimulating consumption should be made. He suggests that as long as the bottom line of occurring systemic financial risk is not touched, the consumer finance companies including those engaging consumer credit should be given greater space to explore and practice.
In terms of the bottom line of risk, Li Daokui further explained that firstly, consumer finance companies should be precautious beforehand to avoid a chain of major risks in balance sheet management; secondly, no negative social events occur. It needs to do two things to accomplish the above, firstly, to control the financing side, such as there should be no promises to the investors of high investment returns that may fail to keep later when financing; secondly, information sharing between different companies should be promoted by regulators.
The report above indicates that it is necessary for the consumer credit providers not only to expand the cake of consumer finance from the perspective of developing the inclusive finance, but also to provide tailored financial products and services, maintain the existing customers responsibly and safely with high quality services and develop potential customers under the premise of risk controllable and safety and oriented by customer’s demands.
Many executives in licensed consumer finance companies or those consumer finance companies in bank industry and in Internet industry believe that it is necessary for the consumer finance companies to take serving customer as the starting point, serving consumption as the direction and serving with compliance, safety and responsibility as the criterion in the process of rapid development, providing consumers with more convenience of the modern finance services with more diversified operation and more detailed experience. Consumer credit providers should actively explore their own unique advantages and carry out dislocation competition, in order to bring more inclusive financial services to the consumers.